President-elect Barack Obama is working on an economic stimulus package that will include hundreds of billions of dollars worth of tax breaks for businesses, according to a transition official and Democratic aides.
Obama wants tax cuts to make up 40% of a stimulus package. The economic package under consideration by the president-elect and his Congressional allies would total between $675 billion to $775 billion over two years. If the tax cuts represent 40% of that, that would mean about $270 billion to $310 billion.
Making tax cuts such a large part of the stimulus may help win support from congressional Republicans, some of whom are already on the record in support.
"Republicans, by and large, think tax relief is a great way to get money to people immediately," Senate Minority Leader Mitch McConnell said yesterday on ABC's "This Week."
Business tax breaks
For businesses, lawmakers will allow companies to get refunds for taxes paid in any or all of the past five years by deducting losses they've incurred now; those losses can normally only be carried back two years.
Congress is also likely to include incentives such as accelerated depreciation to encourage companies to buy equipment now rather than defer such investments. The plan will also offer companies tax breaks for hiring more workers in an effort to stem the increasing unemployment rates.
One disappointment for many businesses with international operations is that Congress is unlikely to enact a new round of incentives for US-based multinational corporations to repatriate foreign earnings at a discounted tax rate as urged by business groups such as the Chamber of Commerce, that aide said.
Obama plans to build on some elements of the stimulus package signed by President Bush last year. Provisions intended to stir capital investment included a provision allowing businesses to depreciate half of their spending in 2008 on new equipment right away, rather than spread out over the years, reducing their immediate tax burdens. Advisers to the new administration have indicated they will either extend this measure to investment in 2009 and 2010 or through some other mechanism.
Many of the business tax incentives in the economic plan would be accelerated so that any dollar written off now would not be able to be claimed in future years. That would reduce the long-term impact of the tax cuts on the federal budget deficit, which had been raised as a concern.
Congress is unlikely to be able to finalise the plan by January 20, the day of the inauguration, as some had hoped. It is instead expected that the legislation will pass through the Senate and signed into law before the mid-February congress recess.
